Australia: Annual growth nears 10-year low in Q1 despite quarterly acceleration
June 5, 2019
Australia’s economy gained steam in the first quarter, supported by a stronger external sector and a softer contraction in fixed investment, according to figures released by Australia’s Statistical Institute (ABS) on 5 June. GDP expanded 0.4% quarter-on-quarter in seasonally-adjusted terms in Q1, following a 0.2% increase in the fourth quarter. The result slightly undershot market analysts’ expectations of a 0.5% expansion. On an annual basis, the economy grew just 1.8% as had been projected, down from Q4’s 2.4% and representing the weakest expansion in close to a decade.
A sizable slowdown in government consumption led the deceleration in the domestic economy. Particularly, government spending slumped in the first quarter (Q1: +0.8% quarter-on-quarter; Q4: +2.0% qoq), as state and local governments tightened the purse strings. Consumer spending also softened slightly (Q1: +0.3% qoq; Q4: +0.4% qoq), constrained by plunging house prices, unremarkable wage growth and high levels of debt, which was only partly offset by healthy job gains and moderate inflation. Meanwhile, fixed investment shrunk 0.7% (Q4: -1.0% qoq): Another significant fall in dwelling investment due to the ongoing downturn in the real estate market more than offset an increase in non-dwelling construction and higher public investment. On the other hand, inventories subtracted 0.1 percentage points from growth in Q1, after contributing 0.2 percentage points in Q4, as firms lightened warehouses amid modest demand.
The external sector, meanwhile, improved. Exports rose 1.0% in Q1 (Q4: -0.5% qoq), due to a jump in foreign sales of rural goods. Imports, meanwhile, fell 0.1% in Q1, after increasing 0.4% in Q4. Purchases from abroad of both services and intermediate goods shrank, more than offsetting an uptick in imports of consumer and capital goods.
While robust commodity exports will support the economy, falling real estate investment and weaker consumer spending will limit GDP growth this year. That said, the election outcome should boost investor confidence and could support fixed investment. Escalating global trade tensions and China’s economic slowdown represent the key downside risks to the outlook.